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How the Term ‘Tax Expenditure’ Leads to Bigger Government

The Center for American Progress has a new weekly feature examining “tax expenditures” in the Internal Revenue Code. As I’ve written before, there ain’t no such thing as a tax expenditure. Or a tax subsidy. Targeted tax breaks are bad because, on balance, they expand government’s control over the people. But they are not “expenditures” or “subsidies.” Using either of those terms implies that the money not collected by the IRS because of a targeted tax break actually belongs to the federal government, rather than the people who earned it.

That very deception appears to be the aim of the Center for American Progress’ new feature. Their first “Tax Expenditure of the Week” is the exclusion for employment-based health insurance. They use the “tax expenditure” concept to argue that ObamaCare’s 40-percent “Cadillac tax” on high-cost health plans is actually a good thing:

The tax exclusion for employer-sponsored health care benefits is the largest tax expenditure and one of the most important. The Patient Protection and Affordable Care Act takes steps to make it more targeted and cost effective in the context of overall health care reform. Other tax expenditures should be similarly evaluated and considered in the context of the policy goals they serve.

(To be clear: I favor eliminating all targeted tax breaks, even the personal and dependent exemptions, and having everyone pay the same low, low, low rate. Eliminating tax breaks for health care is essential for bringing medical care within the reach of low-income people. But the exclusion for employer-sponsored insurance is a particularly sticky wicket, such that reform will need to happen in two steps. Here’s the first step.)